Comment: We need a Budget for growth and the squeezed middle

Chris Nicholson is director and chief executive of CentreForum, the liberal think tank.

Monday, 19 March 2012
11:53 AM

A Budget which keeps taxes fair could show that we are, indeed, "all in this together".

By Chris Nicholson

It seems a very long time since "Budget purdah" meant government ministers did not speculate about what might or might not be in the Budget. Even before the coalition government led to views on Budget options being openly discussed, the chancellor's Budget speech had often been leaked so much in advance that the set piece itself was something of a disappointment.

So what would CentreForum like to see in the Budget? Well first, at a time when hard-working families are feeling the pinch it is vital that action is taken to help low- and middle-income earners who are struggling to make ends meet. The best way to do this is to help take many working families out of income tax by increasing the personal tax allowance and the annual equivalent of the level at which employees pay national insurance to £10,000.

CentreForum's analysis shows that this can be paid for through a combination of removing higher rate tax relief on pension contributions, a "mansion tax", increasing capital gains tax to the same level as income tax and removing some of the benefits currently received by better-off pensioners. This could and should be done from April and would provide a welcome boost to demand in the economy.

But that's not the only thing the chancellor should be doing to kick start the economy. As Nicholas Crafts has argued, the government should be relaxing planning rules to enable a much-needed housing boom to stimulate the economy. The private sector built almost 300,000 houses from March 1934 to March 1935.

The government could also boost demand by going further and faster in introducing land auctions – an idea first proposed by CentreForum in 2007.

There is considerable scope for boosting company and economic performance by promoting employee ownership and share ownership. The government should give discounts on capital gains tax on the transfer of significant shareholdings in companies to employees, as well as other technical tax changes to boost employee share ownership.

And then there is the debate about whether the 50p tax rate should be dropped. This has often generated more heat than light. Leaked reports that the 50p rate has raised little extra revenue in the first year mean nothing. By announcing well in advance that the 50p tax rate would be introduced in 2010 Alistair Darling ensured that individuals had plenty of time to accelerate their income into 2009 and rearrange their tax affairs so that they minimised their taxable income in 2010/11. There is a strong case in the medium- to long-term for dropping the 50p tax rate but retaining it over the next few years will raise revenue and help to show that we really are "all in it together".

Chris Nicholson is director and chief executive of CentreForum, the liberal think tank.

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